The effect of agency banking on the financial performance of commercial banks in Kenya

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Abstract

Initially access to banks was not an easy thing for a common man in Kenya as banking sector
was majorly targeting working class and the middle class/people with more disposable income.
Since 2010, there have been significant improvements in the banking sector with the introduction
of agency banking, an innovative delivery channel that seeks to bring access to financial services
much closer to entrepreneurs (Ombutora & Mugambi, 2013). This study sought to find out the
role of agency banking in improving financial performance of commercial banks in Kenya. In
the last decade, there has been an explosion of different forms of remote access financial
services, that is, beyond branches. These have been provided through a variety of different
channels, including mobile phones, automatic teller machines (ATMs), and point-of-sale (POS)
devices and banking correspondent (Podpiera, 2008). This study sought to investigate the effect
of agency banking on financial performance of commercial banks in Kenya. This study
employed a descriptive research design. The population for this study comprise of 44
commercial banks in Kenya. The target study sample comprised of the 11 commercial banks
operating agency banking as at 31st March 2013 (CBK, 2013).The study used secondary data.
Data collected was analyzed using descriptive statistics. Descriptive statistical tools such as
frequencies, percentages, mean and standard deviation helped the researcher to describe the data.
Multiple regression models were used to analyze the data on financial performance. Multiple
regressions is a statistical technique used to examine the way a number of independent variables
relate to one dependent variable. The study revealed that there was variation a great variation on
financial performance of commercial banks in Kenya due to changes in liquidity, commission
income and growth, this shows that great variation in financial performance could be accounted
to changes in liquidity, commission income and growth. The study established that there was a
strong positive relationship between financial performance and liquidity, commission income
and growth. The study found that found that liquidity, commission income and growth were
significantly influencing financial performance of commercial banks in Kenya. The study also
revealed that a unit increase in liquidity, commission income and growth would lead to increase
in financial performance of commercial banks. The stduy revealed that there was positive
relationship between liquidity, commission income, growth and financial performance of
commercial banks. The study also found that liquidity, commission income and growth
significantly affect the financial performance of commercial banks. Agency banks also improves
banks performance as it reduces huge savings on cost of construction of bank premises and
leasing costs than when banks are using the Agency premises. It also cuts on human resource
expenses.